Owning your first property is a huge financial achievement. Once you have done it, you may want to buy your second property.
You could buy a second house to turn it into an investment property and grow your wealth, or you could turn your first home into a rental property, so you can buy a larger home for your growing family.
Whatever your reason, consider these issues when buying a second house. These points will help you determine if you’re ready to take on a second home loan.
Do you have significant equity?
Equity is a valuable asset for every homeowner. Equity is the portion you own in your property. Let’s say that the current value of your home is $400,000, and you owe $200,000 to your lender. This means you have equity of $200,000 which you can use to purchase your second house while using your current home as collateral.
If you’re considering of going down this route, it is an advantage if you’ve maintained your property or done home renovations and improvements that could increase its value. This way when your lender revalues your property, you will have accrued enough equity for a deposit on your second property.
Do you have enough savings?
Not everyone can afford two mortgages at the same time. Even if you’ve used your equity to cover the deposit on your second house, there are still expenses and fees you need to pay for such as repairs and maintenance, conveyancing fees, stamp duty, and much more. Having a good amount of savings can provide you with the assurance that you can afford to take care of two mortgages despite any storm you may go through.
Do you have too much debt?
Are you still paying off your first mortgage? This will reduce your borrowing capacity. Your lender will determine your LVR using information such as your credit card debts and any car loans or personal loans. Make sure that you don’t have too much debt so you can maintain your borrowing capacity.
Do you know what loan product to get?
The suitable loan product for your second home will depend on your current financial standing. There are many things to consider when it comes to choosing a home loan product such as the type of interest rate, payment frequency, loan features, and deposit. You can use our mortgage calculator to see if you can afford to take out a second loan.